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Tuesday, March 20, 2012

Spain v Commission: another round

The relationship between the European Commission and the Spanish government is clearly not all warm and fuzzy at the moment. After the discussion on deficit reduction targets, Spain has now also come under fire for its use of EU structural funds.

According to the plan, 51 plants were to be built. At the moment, 17 are in use and 15 are under construction. €1,664 million was invested, and we need an additional €762 million if we want all these 32 desalination plants to be operative.

Furthermore, Arias Cañete noted that the existing plants are only working at 16.45% of their maximum capacity. Although the project was launched by the previous Socialist government, it is now for the new centre-right cabinet led by Mariano Rajoy to sort out the situation and decide, among other things, if it is still worth starting work on the remaining 19 plants, as initially planned.

As you may expect, the bulk of funding for these plants came via the EU's structural funds, out of which Spain has done very well. And the European Commission is not happy. Here is what a spokeswoman for EU Environment Commissioner Janez Potočnik said in an e-mail quoted by El País,

A significant amount of European funds, around €1.5bn, has been invested in desalination plants across Spain over the past few years. We have taken note of the statement to the [Spanish] parliament that they are working at 16% of their capacity. This calls into question the effective use of European taxpayers' money.

The Commission also said that it now expects the Spanish government to "take the appropriate measures to achieve the best use of these infrastructures paid with EU funds", warning of "a big negative impact on the availability of European funds for Spain".

Incidentally, in our recent report on EU regional spending, we pointed out that while EU subsidies may have benefited individual regions during a limited period of time, they have been poorly targeted in Spain. When Spain needed to address its overheated economy and property bubble, EU structural and cohesion funds were channelled towards infrastructure projects, which were already subject to abundant private credit and over-investment at the time. Indeed, 28% of these funds are still set to go towards infrastructure projects in different forms during the current EU budget period (2007-2013).

Spain needs a lot of things, but more roads or non-operational desalination plants are not among them.

All of this goes to show that EU regional spending is in urgent need of a radical overhaul, which would far better serve Spanish and European economies. In case you missed it, we set out how such an overhaul should look in the report we published in January.